（於開曼群島註冊成立之有限公司） （股份代號： ） CONTENTS 2 Corporate Information 4 Financial and Operational Highlights 6 Chairman’s Statement and Management Discussion and Analysis 29 Corporate Governance Report 42 Directors and Senior Management 46 Report of the Directors 64 Independent Auditor’s Report 66 Consolidated Statement of Profit or Loss and Other Comprehensive Income 68 Consolidated Statement of Financial Position 70 Consolidated Statement of Changes in Equity 72 Consolidated Statement of Cash Flows 74 Notes to the Consolidated Financial Statements 178 Financial Summary CORPORATE INFORMATION Directors Remuneration Committee Executive Directors Dr. Bao Jiming (Chairman) Mr. Zhou Guanxuan Mr. Xiao Shu (Chairman and Chief Executive Officer) Mr. Lau Tze Cheung Stanley Mr. Zhou Guanxuan (Vice Chairman) Mr. Tan Jibin Mr. Li Honggao Nomination Committee Mr. Wang Yonghui Mr. Xiao Shu (Chairman) Non-Executive Directors Dr. Chan Yuk Sing Gilbert Mr. Wang Duo (Resigned on 11 May 2020) Mr. Gu Jiuchuan Ms. Sui Wei (Appointed on 20 February 2019 and resigned on 14 April 2020) Mr. He Sean Xing (Resigned on 20 February 2019) Auditor Ms. Gui Songlei (Resigned on 21 May 2020) Ernst & Young Independent Non-Executive Directors Certified Public Accountants Mr. Lau Tze Cheung Stanley Dr. Bao Jiming Principal Bankers Dr. Chan Yuk Sing Gilbert Mr. Gu Jiuchuan Standard Chartered Bank (Hong Kong) Limited Standard Chartered Bank (China) Limited Company Secretary China CITIC Bank Corporation Limited Shanghai Pudong Development Bank Co., Ltd. Mr. Tan Jibin Legal Advisers Authorized Representatives As to Hong Kong law: Mr. Xiao Shu Simpson Thacher & Bartlett Mr. Tan Jibin As to PRC law: Audit Committee Shu Jin Law Firm Mr. Lau Tze Cheung Stanley (Chairman) Dr. Chan Yuk Sing Gilbert Dr. Bao Jiming Mr. Gu Jiuchuan 2 OZNER WATER INTERNATIONAL HOLDING LIMITED ANNUAL REPORT 2019 CORPORATE INFORMATION (CONTINUED) Investor and Media Relations Cayman Islands Principal Share Consultant Registrar and Transfer Office DLK Advisory Limited Intertrust Corporate Services (Cayman) Limited 190 Elgin Avenue George Town Registered Office Grand Cayman KY1-9005 190 Elgin Avenue Cayman Islands George Town Grand Cayman KY1-9005 Cayman Islands Hong Kong Share Registrar Computershare Hong Kong Investor Services Limited Principal Place of Business in Shops 1712–1716, 17th Floor Hong Kong Hopewell Centre 183 Queen’s Road East 31/F, Tower Two, Times Square Wanchai 1 Matheson Street Hong Kong Causeway Bay Hong Kong Stock Code Headquarters and Principal Place of 2014 Business and Head Office in China No. 60 Guiqiao Road Company’s Website Pudong New District Shanghai www.ozner.net The People’s Republic of China ANNUAL REPORT 2019 OZNER WATER INTERNATIONAL HOLDING LIMITED 3 FINANCIAL AND OPERATIONAL HIGHLIGHTS Year ended 31 December (RMB in thousands) 2019 2018 Total Revenue 1,709,184 1,644,914 Water purification services 1,155,315 1,149,169 Supply chain services 452,129 416,324 Air sanitization services and others 101,740 79,421 Gross Profit 705,191 760,641 (Loss)/profit for the year (970,220) 134,270 Basic (loss)/earnings per share (RMB cents) (42.30) 5.45 As at 31 December (RMB in thousands) 2019 2018 Revenue-generating assets 1,771,608 1,789,034 Total assets 6,773,558 6,574,693 Total liabilities 4,623,914 3,263,887 Fast Enlarging Installation Base Increase in Rental Model’s Proportion Compound Annual Growth Rate: 30% 2,197 2,034 1,709 1,265 –20.3% 925 232 195 183 185 185 657 158 152 463 2013 2014 2015 2016 2017 2018 2019 20132014 2015 2016 2017 2018 2019 Installation base (1,000 units) Rental Model New Installation (1,000 units) 4 OZNER WATER INTERNATIONAL HOLDING LIMITED ANNUAL REPORT 2019 FINANCIAL AND OPERATIONAL HIGHLIGHTS (CONTINUED) Sustained High Renewal Rate 2017 2018 2019 Corporate 94.7% 94.8% 86.0% Household 97.2% 98.4% 94.0% Number of Distributors Service Network Coverage +4.0% Upgrade system to expand service +11.4% 7,487 network coverage 7,202 2,340 2,100+ 6,396 2,000+ 4,980 1,300+ 3,648 800 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Number of distributors (unit) Number of covered cities & counties (unit) ANNUAL REPORT 2019 OZNER WATER INTERNATIONAL HOLDING LIMITED 5 CHAIRMAN'S STATEMENT AND MANAGEMENT DISCUSSION AND ANALYSIS Industry Review 2019 was a challenging year for Chinese enterprises. With the complicated international situation and unexpected conflicts all over the world, the Sino-US trade negotiation made progress despite twists and turns, and finally, the two countries entered into the Phase-one Economic and Trade Agreement on 15 January 2020. It indicates that the two major economies in the world reached a temporary ceasefire after a trade war that lasted 18 months. According to data from the National Bureau of Statistics of China, China’s GDP recorded a growth of 6.1% in 2019, which was the lowest since 1990. Confronted by the complicated economic environment, the Chinese government strengthened the macro counter-cyclic adjustments, which realised steady progress in economic development, maintained reasonable economic operation, promoted high-quality development, and achieved growth. During the year, most small and medium enterprises faced great difficulties during transformation and great pressure in terms of cost and funds. In terms of the water purifier industry, the reports released by AVC revealed that the market size of water purifiers was RMB13.83 billion as at the first half of 2019 with a year-on-year increase of 1.3%; the volume of retail sales was 5.02 million units with a year-on-year increase of 8.6%. According to the latest offline data from FEB, the overall retail sales of water purifiers reached RMB328.31 million in November 2019 with a year-on-year decrease of 17.8%, and the volume of retail sales was 87,000 units with a year-on-year decrease of 18.9%. Water purifiers entered into the bottleneck period after several years’ development. The market experienced a growth bottleneck in the first and second-tier cities, and it still takes time to achieve growth in the third and fourth-tier cities. As the growth of the water purifier industry slowed down, the market entered into the phase of competing for existed market share. Therefore, water purifier enterprises have been going through market exploration and transformation. Despite slower growth, the water purifier market was still on the rise on the whole, and the market size is expected to realise continuous expansion. The development of the water purification industry in China was divided into two phases in recent years. The first phase was the popularisation of the water purifier market, and the second phase still required the concerted efforts of all the participants in the water purifier industry. The popularisation rate of water purifiers in China was much lower than that of some advanced countries due to lack of industry standards and consumers’ consciousness of the safety of drinking water. In developed countries, the market penetration of household water purifiers exceeded 80%. For example, the market penetration of water purifiers reached 80% in Japan, 90% in US and 95% in Korea. On the contrary, the market penetration of household water purifiers in China was only about 20%, with only some first-tier cities having higher market penetration of over 30%. This disparity indicates that there is a significant gap between China and some advanced countries. In recent years, consumers have increasingly higher demands for water purifiers with the continuous improvement in living standard and power of consumption. In the future, the market penetration of water purifiers is expected to be on the rise. In terms of the development of water purification enterprises, water purification enterprises need to seek solutions for various scenarios in order to break through the boundary of household water purification. In recent years, water purification enterprises mainly focus on upgrading terminal water purifiers. Under the backdrop of consumption upgrades and popularisation of healthy drinking awareness, consumers are paying more attention to health, quality and high-end functions when selecting water purifiers, and the traditional only one-terminal water purifier can no longer satisfy people’s demands. This indicates that, in the future, in addition to upgrading terminal water purifiers, water purification enterprises shall also explore users’ water consumption scenarios, provide solutions with several modes of installation for various scenarios and groups such as the Internet of Things (“IoT”) and functional water, realise the purification transition from “drinking water” to “domestic water”, and break through the limitations of water purification. At present, the continuous development of artificial intelligence, cloud technology, technology relating to the IoT and big data technology indicates that people are recreating their home environment from a high-tech perspective. In particular, the younger generation in China is upgrading their home devices for better living at home. 6 OZNER WATER INTERNATIONAL HOLDING LIMITED ANNUAL REPORT 2019 CHAIRMAN'S STATEMENT AND MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED) In addition to household use, water purifiers are also extensively applied in the commercial market. Commercial water purifiers are mainly targeted at the public drinking water market, including more than 20 million registered enterprises, more than 9,500 hospitals, over 1 million schools, over 200 airports, over 2,000 stations and more than 12,000 starred hotels, with huge market accommodation.